Dutch court orders Shell to pay for reserves scandal

May 29, 2009
The Amsterdam Court of Appeals ordered Shell to pay $450 million to a foundation representing institutional investors after it suffered securities fraud related to the company's proven oil and gas reserves.

Uchenna Izundu
OGJ International Editor

LONDON, May 29 -- The Amsterdam Court of Appeals has ordered Royal Dutch Shell PLC to pay $450 million to a foundation representing institutional investors after it suffered securities fraud related to the company's proven oil and gas reserves, which were found to be inflated from 1997-2003.

The group represents more than 150 institutional investors from 17 European countries, as well as Canada and Australia. In 2004 Shell was forced to downgrade its reserves by nearly 4 billion bbl and this triggered the resignation of Philip Watts, Shell's chief executive at the time, and Walter van de Vijver, the company's former exploration chief.

Grant & Eisenhofer, the corporate law firm that represented the group, described the agreement as a particular milestone for European investors, given that European courts lack a class action mechanism for pursuing securities fraud claims. "Under a relatively new statute never previously applied to a securities case, Dutch law allowed the Amsterdam appellate court to accept a collective resolution as long as both sides agreed, even in absence of a civil lawsuit," the firm said.

Estimates are that over 6-year period covered by the case, Shell overstated more than $100 billion of future cash flows, based on billions of barrels of oil that were not actually held in its reserves.

Shell will pay the compensation to the foundation and it covers all non-US purchasers of company stock bought on European securities exchanges—principally London and Amsterdam—during the misstatement period.

Contact Uchenna Izundu at [email protected].